Section 89 of the Income Tax Act, of 1961 provides relief to taxpayers who have received arrears of salary or pension. This section allows such taxpayers to distribute the arrears over the relevant years and pay tax in the respective years in which the income would have been received. Let’s take a closer look at this section and how it can benefit taxpayers.
Background:
Salary and pension arrears are payments that are received by an employee or a retiree in a lump sum for a previous period or years. This often happens when there is a delay in receiving salary or pension due to administrative issues or disputes. Since the arrears are paid in a lump sum, the taxpayer can end up in a higher tax bracket and pay more tax than they would have if the payment was received in the relevant year.
Section 89 Relief:
To address this issue, Section 89 provides relief to taxpayers by allowing them to calculate their tax liability as if the arrears had been received in the year(s) to which it relates. The taxpayer can then claim relief for the excess tax paid in the relevant year(s) in which the arrears were received. This can be done by filing Form 10E with the Income Tax Department.
The relief provided under Section 89 applies to all employees and pensioners who receive arrears, whether they are from the government or private sector. It is important to note that relief is not available for arrears of family pensions or the amount of gratuity received.
Calculation of Relief:
To calculate the relief under Section 89, the taxpayer needs to first calculate the tax liability in the year(s) to which the arrears relate. This can be done by adding the arrears to the income for that year and calculating the tax as per the applicable tax slab. The taxpayer can then calculate the tax liability for each of the years to which the arrears relate, based on the income that would have been received in each year.
The relief is then calculated by deducting the tax liability of the year(s) to which the arrears relate from the tax liability of the year in which the arrears were received. This can be done using the formula provided in Form 10E.
Other Useful Links:
- Section 194IB of Income Tax Act
- Section 194J of Income Tax Act
- Section 194K of Income Tax Act
- Section 194N of Income Tax Act
- Section 194O of Income Tax Act
- Section 195 of Income Tax Act
Applicability of Section 89:
Section 89 relief applies to taxpayers who receive salary or pension arrears, as well as to those who receive a lump sum payment on retirement or termination of employment. The relief is available for both government and non-government employees.
However, it is important to note that the relief is not available for those who receive arrears of family pension or the gratuity amount. In addition, the relief cannot be claimed for arrears that have been received in the same financial year as the arrears were due.
Claiming Section 89 Relief:
To claim relief under Section 89, the taxpayer must file Form 10E with the Income Tax Department. This form must be filed for each year in which the arrears are distributed.
The taxpayer must provide the following information in Form 10E:
Details of the employer/pension provider who has paid the arrears
Details of the arrears received, including the year(s) to which the arrears relate
Calculation of the relief amount, as per the formula provided in the form
Other relevant details, such as tax deductions claimed in the relevant year(s)
Once the form is filed and processed by the Income Tax Department, the taxpayer will receive a revised tax computation, which reflects the relief claimed under Section 89. The relief amount will be adjusted against the tax liability for the relevant year(s).
Advantages of Section 89 Relief:
The main advantage of Section 89 relief is that it helps taxpayers avoid paying excess tax on salary or pension arrears. By allowing taxpayers to distribute the arrears over the relevant years, the section ensures that taxpayers are not taxed at a higher rate than they would have been if the arrears were received in the relevant years.
In addition, Section 89 relief can also help taxpayers avoid penalties and interest on tax dues. If a taxpayer fails to pay the correct amount of tax due to salary or pension arrears, they may be subject to penalties and interest under the Income Tax Act. However, by claiming relief under Section 89, taxpayers can avoid such penalties and interest.
Conclusion:
In summary, Section 89 of the Income Tax Act is an important provision that provides relief to taxpayers who receive salary or pension arrears. By allowing taxpayers to distribute the arrears over the relevant years and pay tax accordingly, the section ensures that taxpayers are not burdened with a higher tax liability than they would have had if the arrears were received in the relevant years. If you have received arrears of salary or pension, it is important to consult with a tax professional to ensure that you take advantage of this section and claim the relief that you are entitled to.
Frequently Ask Question
Q1. What is Section 89 of the Income Tax Act?
Section 89 of the Income Tax Act provides relief to taxpayers who have received salary or pension arrears. The section allows taxpayers to distribute the arrears over the relevant years and pay tax accordingly so that they are not burdened with a higher tax liability than they would have had if the arrears were received in the relevant years.
Q2. Who is eligible for relief under Section 89?
All employees and pensioners who receive salary or pension arrears, whether from the government or private sector, are eligible for relief under Section 89. However, the relief is not available for arrears of family pension or the amount of gratuity received.
Q3. How is relief under Section 89 calculated?
To calculate relief under Section 89, the taxpayer must first calculate the tax liability in the year(s) to which the arrears relate. The taxpayer can then calculate the tax liability for each of the years to which the arrears relate, based on the income that would have been received in each year. The relief is then calculated by deducting the tax liability of the year(s) to which the arrears relate from the tax liability of the year in which the arrears were received.
Q4. How can a taxpayer claim relief under Section 89?
To claim relief under Section 89, the taxpayer must file Form 10E with the Income Tax Department. This form must be filed for each year in which the arrears are distributed. The form must include details of the employer/pension provider who has paid the arrears, details of the arrears received, calculation of the relief amount, and other relevant details.
Q5. What is the deadline for filing Form 10E?
The deadline for filing Form 10E is before filing the tax return for the relevant year in which the arrears were received. If the form is not filed before the tax return is filed, the relief may not be granted.
Q6. Can relief under Section 89 be claimed for arrears received in the same financial year?
No, relief under Section 89 cannot be claimed for arrears received in the same financial year as the arrears were due.
Q7. Can a taxpayer claim relief under Section 89 for multiple years?
Yes, a taxpayer can claim relief under Section 89 for multiple years in which the arrears are distributed. The taxpayer must file Form 10E separately for each year in which the arrears are distributed.
Q8. What are the advantages of claiming relief under Section 89?
The main advantage of claiming relief under Section 89 is that it helps taxpayers avoid paying excess tax on salary or pension arrears. In addition, it can also help taxpayers avoid penalties and interest on tax dues.
Q9. Is it necessary to consult a tax professional to claim relief under Section 89?
While it is not necessary to consult a tax professional to claim relief under Section 89, it is recommended to do so to ensure that the relief is calculated accurately and all necessary steps are taken to claim the relief.
